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Manchester City following in Pompey’s footsteps

Posted by John Beech on October 2, 2010

Manchester City’s financial results, published earlier this week (1), were generally reported uncritically earlier this week, notwithstanding the key loss of £121m, with the exception at least of The Sun (2), where there was some attempt to look beyond the positive headlining provided by the club.

According to the club, the financial highlights could be summarised in large font size thus:

We have reported revenues in excess of £100m with a 44% rise in turnover to £125.1m…
Corporate partnership revenue increasing by £25.9m to £32.4m…
Ticket revenues increasing by £2.8m (18.6%) to £18.2m…
Season ticket revenues up by £0.9m to £9.6m…
Television rights fee income increasing by £5.7m (11.8%) to £54m…
Matchday hospitality revenue growing by 0.7m (13%) to £6.1m…
Retail sales and merchandising revenue increasing by £2.9m (60%) to £7.9m

Excellent news indeed, but then we find in much smaller font size that the club is report ing a net loss (and there was me beginning to think they had forgotten about costs) of £121.3m. Apparently “there have been significant increases in both player and non-player wage costs which have only been partially offset by substantial growth in the club’s commercial and other revenues”

Or to put it another way, the club itself can’t afford the players but its benefactor can. Search the report for the word ‘debts’ and you will be out of luck however. Sheikh Mansour is following the Abramovich route and converting debts to equity, and on a scale that invites comparison with Chelsea:

The financial foundations upon which the Club operates have been strengthened with the conversion into equity of £304.9m in shareholder loans. A further £135.8m of new equity was issued during the financial year and post year-end a further £53.2m of new equity was issued. As we continue to invest in all areas of the Club, we do so virtually debt free – with only £36m of long term commercial bank debt following the conversion of shareholder loans into equity during the year.

So, there you have it – well over £400m injected with a loss of £100m. Not quite so encouraging then.

In the smaller print financial data towards the back of the report we find that the aggregate payroll costs have risen from £82.6m to a rather worrying £133.3m – or, as the club like to present data, a rise of 61%. Turnover had risen from £87m to £125m, meaning that the wages/revenues ratio had risen from 94.9% to 106.6%.

Which is where the reference to Portsmouth comes in. Deloitte point out that for the Premier League clubs en masse the wages /revenues ratio has risen to a worrying 67% (3), but this rather hides the variance individual clubs have. Here are the ratios over five seasons:

04/05

05/06

06/07

07/08

08/09

5 seasons’
Average

Ratio for
whole
5 seasons

Manchester Utd.

48.3

50.9

43.5

47.1

44.2

46.8

46.4

Tottenham

47.0

54.8

42.5

46.7

55.4

49.3

49.2

Arsenal

57.4

62.4

50.5

48.4

46.4

53.0

51.7

Liverpool

52.5

56.6

57.9

55.1

58.0

56.0

56.2

Bolton

47.9

52.1

60.2

66.1

68.9

59.0

59.4

Everton

51.4

63.6

74.7

58.8

61.6

62.0

61.5

Middlesbrough

55.7

n/a

79.6

72.5

58.7

66.6

66.0

Sunderland

64.0

44.1

90.1

58.3

76.7

66.6

65.6

West Bromwich

57.4

57.3

73.4

79.9

65.4

66.7

65.4

Manchester City

61.9

55.6

63.9

65.9

94.9

68.4

70.3

Newcastle Utd.

57.7

62.8

65.1

78.6

85.2

69.9

70.2

West Ham Utd.

63.7

51.9

75.8

79.7

91.1

72.4

74.7

Aston Villa

64.2

78.1

81.9

66.7

83.7

74.9

75.2

Chelsea

73.1

74.6

69.7

80.6

80.1

75.6

76.0

Hull City

57.3

61.7

76.7

129.0

65.8

78.1

74.0

Fulham

85.8

80.4

88.6

73.3

69.0

79.4

77.9

Blackburn

75.8

76.9

84.8

70.3

90.6

79.7

79.5

Stoke City

65.2

88.6

88.1

105.9

55.6

80.7

68.6

Portsmouth

69.5

66.0

89.6

76.4

108.8

82.1

83.9

Wigan Athletic

208.3

58.3

100.3

88.3

89.9

109.0

87.5

[Developed from data in Appendix 7 of Deloitte (2010); annual values of over 100% highlighted]

Only five clubs have been operating within the 60% limit generally advocated as good practice. These include three of the so-called ‘big four’ of English football (Arsenal, Liverpool and Manchester United, but not Chelsea), who have the highest wages and revenues, thus skewing the average for the whole league. Just over half the clubs have wages. revenues ratios of over 70%, with worst practice at Wigan Athletic, with a five-seasons ratio of 87.5%. Among the data are some particularly worrying examples of ratios above 100% – Wigan with 100.3% in season 2006/07, Stoke with 105.9% in 2007/08, Portsmouth with 108.8% in 2008/09, Hull with 129.0% in 2007/08, and Wigan again with an amazing 208.3% in 2004/05.

Such figures are clearly unsustainable without the ‘bankrolling’ of a benefactor, and by any interpretation constitute financial doping.

[Normal service should now have been resumed. I’ve moved office and buildings, and largely unpacked. My laptop has been sorted with a new hard drive – all data recovered, but still some non-standard software to install. Fingers crossed, and on a new back-up schedule!]

10 Responses to “Manchester City following in Pompey’s footsteps”

Good post! The Premier League is addicted to sugar daddies willing to sink millions into a club and unfortunately it is not a cycle easily ended. Of course there is always the opposite end of the spectrum where owners are milking clubs like Liverpool and Manchester United dry. Overall the Premier League seems to have no long term plan for club stability!

The financial ratios are fairly irrelevant for the clubs run as a ‘hobby’. Long term though it is a worry as the drive to increase revenues results in higher gate prices. What that means is fewer young fans as families can’t go together like they used to, and inevitably they will be less passionate about the game…

John Beechsaid

The financial ratios are fairly irrelevant for clubs so long as they are run as a ‘hobby’, but their significance kicks in with a vengeance the minute a ‘benefactor’ walks away or an ‘investor’ can no longer finance the debt. They are also directly relevant to the issues of Financial Fair Play and financial doping.

[…] measured by the team’s ability to maintain Champions League football at the Emirates without the financial doping so favoured in other places. No silverware, but solid, high level football every season. Kroenke […]

[…] Perhaps just a hint there that Mr Whelan’s pockets are not bottomless. It was he who has called for control on players’ wages (3). It was Wigan that managed to hit a wages/revenues ratio of an utterly unsustainable 208.3% in 2004/05 (posting passim). […]